Shipping outlook bleak; offshore biz robust: GE Shipping

G Shivakumar, CFO, GE Shipping, says that on the shipping side the outlook does not looks very good. The company's earnings have been very low in dry bulk business. The offshore segment continued to be quite strong over the last couple of years, especially driven by the price of oil and the developments that is happening on the offshore front.

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Below is the edited transcript of his interview to CNBC-TV18.

Q: In shipping what kind of performance do you expect to see through the course of the year and what is happening with freight trades?

A: The outlook does not look very good on the shipping side. Our earnings have been very low in the dry bulk segment and our freight rates are bit above, covering operating expenses, nothing above that. We don't expect much improvement in supply of dry bulk during the course of this calendar year.

In tanker business, rates for product tanker business are better compared to crude tankers. The outlook is still bad but better than dry bulk, so we don't expect great recovery in this year. There will be minor spikes due to minor weather related outages, etc but we don't expect a sustained strong market.

Q: What about the offshore segment? There, the EBIT performance in the current quarter was quite encouraging?

A: The offshore segment is in a different part of the cycle from the shipping business. The offshore continued to be quite strong over the last couple of years, especially driven by the price of oil and developments happening on the offshore front. We expect to remain buoyant on this business for some time.

However, some worry is developing with regards to supply which might come in. New shipyards are building supply vessels and drilling rigs, so there is a bit worry over the medium term but we expect this year to be fairly robust. In this business we have many back log of contracts, which will help us to insulate from much market volatility.

Q: Any major deliveries expected over the next two-three quarters which might add to your volumes?

A: As of now we don't have any committed capex. We have only added two assets since December 31. First, we have jack up drilling rig which is going on to contract this month and secondly, we took delivery of supply vessel which has also gone into contract.  

As of now, we have no committed capex on the offshore side and we have one vessel that we have committed to on the shipping side but that vessel will join our fleet by early 2015. So currently, apart from this vessel, no other capex is committed in either of the businesses.

Q: When does the ONGC contract commence and what kind of impact might that have on your margin performance?

A: I would not comment on specific contracts. We expect the contracts to commence any day now. So that will start off and the contract will run for five years. Of course, it will help to improve the profitability though not necessarily on the margins. We look at overall profitability and don't track gross profit or net profit margin.